Nonrecourse debt. 1. Allocations Between General Partner and Initial Limited Partner. Prior to the withdrawal of the initial limited partner, all taxable income and tax losses shall be allocated 99% to the general partner and 1% to the initial limited partner. As between the initial limited partner and the other limited partners, the interim closing method of tax accounting shall be used in allocating taxable income and tax losses among the partners according to their varying interests in the partnership, to the extent allowable by Section 706(d) of the Internal Revenue Code. 2. Allocations Between General Partner and Limited Partners. (a). Prior to Payout. Except as otherwise provided by subsection 2.(c), all taxable income and tax losses after withdrawal of the initial limited partner shall be allocated _________ percent to the limited partners and _________ percent to the general partner. (b). Subsequent to Payout. Except as otherwise provided by subsection 2.(c), all taxable income and tax losses attributable to sale of the _________ after payout occurs shall be shared by and allocated among the partners in such amounts as would be necessary for the partners' capital account balances to be zero following cash distributions made in accordance with Section _________, if all net sale proceeds actually were distributed as of the last day of the taxable year. (c). Loss Limitation. Limited partners in no event, however, shall be allocated tax losses in excess of their positive capital account balances, plus the unpaid portion of their installment payments except in accordance with subsection 3. 3. Allocations Attributable to Nonrecourse Debt. (a). Definitions. For purposes of this subsection: (1). "Nonrecourse debt" means any partnership debt with respect to which no partner has any economic risk of loss (other than through their interests as partners in the assets subject to the debt). (2). "Minimum gain" means the amount of gain, if any, that the partnership would realize if it disposed of property subject to nonrecourse debt in a taxable transaction, which gain shall be allocated among nonrecourse debts in accordance with Treasury Regulation §1.704-1(b)(4)(iv)(c). (3). "Tax losses attributable to nonrecourse debt" means, with respect to any partner, the aggregate annual net increases in minimum gain allocated to the partner under Treasury Regulation §1.704-1(b)(4)(iv)(a) and (f). (b). Allocation of Tax Losses Attributable to Nonrecourse Debt. Tax losses attributable to nonrecourse debt shall be allocated in the same manner as other tax losses of the partnership, without taking into account the limitation on losses to limited partners in the last sentence of subsection 2. (c). Minimum Gain Chargeback after Allocations of Tax Losses Attributable to Nonrecourse Debt. If at any time, any partner (1) has a deficit capital account balance that results in whole or in part from prior allocations of tax losses attributable to nonrecourse debt, and (2) the partnership has taxable income, and (3) there is a net decrease in partnership minimum gain then the taxable income shall be allocated first in accordance with the negative capital account
balances to the extent of previous tax losses attributable to nonrecourse debt, and remaining taxable income shall be allocated as provided in subsection 2. 4. Allocations Between Assignee and Assignor. All taxable income and tax losses allocated with respect to any taxable year in which a partner sells, assigns, or transfers all or a part of his or her unit, shall be prorated between the assignor and the assignee on the basis of the number of days in the year before and on or after the effective date of the assignment under subsection _________. 5. Special Allocation of Recourse Loan Items. All income, gain, loss, deduction, or credit (and all items) with respect to the recourse loan and the surety bond, including without limitation all interest expenses, origination fees, and insurance premiums, shall be allocated to the limited partners and among them according to their respective participating shares.